“Canadian supply chain professionals will have a new challenge next year: compliance with forced labour laws. Following the US lead, with its Uyghur Forced Labor Prevention Act (UFLPA) in effect since July 2022, Canada has passed its own legislation in May this year and enacted the Fighting Against Forced Labour and Child Labour in Supply Chains Act, also known as bill S-211.
The Act will come into effect on January 1, 2024. The objective is more supply chain transparency and to this end, Canadian companies will have new reporting obligations starting next year. These will apply to Canadian entities who meet two of the following conditions: at least $20 million in assets, at least $40 million in revenue and/or having an average of at least 250 employees, during at least one of its most recent financial years. Canadian entities are defined as those producing, selling, or distributing goods in Canada or elsewhere, importing goods in Canada or controlling an entity engaged in these activities. The same obligations will apply to government institutions engaged in these activities.
The reporting entities yearly report will need to identify any risks of modern slavery within their supply chains and the steps they have taken to mitigate them. Companies will have to provide information on their business structure, their due diligence policies and processes, training provided to key employees in this respect, steps taken to address any potential use of forced or child labour anywhere in their supply chain, as well as describe how they assess the effectiveness
of their efforts. Non-compliance penalties can go as high as $250,000 per violation and as is often the case with these sorts of issues, the reputational risk is way higher.
Forced versus child labour
It is useful to know the definitions of “forced labour” and “child labour” contained in the act.
“Forced labour” is defined as labour or service provided by a person under circumstances that could reasonably be expected to cause the person to believe their safety would be threatened if they failed to provide the labour or service, or constitute forced labour as defined in article 2 of the Forced Labour Convention, Geneva, 28 June 1930.
“Child labour” is defined as labour or services provided by persons under the age of 18 that are provided in Canada under circumstances that are against Canadian law, or under circumstances that are mentally, physically, socially or morally dangerous to them, interfere with their schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to combine school attendance with excessively long and heavy work, or constitutes child labour as defined in article 3 of the Worst Forms of Child Labour Convention, Geneva, 17 June 1999.
With the first report due by May 31, 2024, Canadian companies will have to conduct due diligence within their organization and with upstream suppliers, to assess and prevent any risk of forced labour and/or child labour used within their supply chains. This continuous, increased supply chain oversight will need to be incorporated in and consolidated with the growing requirements found in other jurisdictions, particularly in the US, but also Mexico and the European Union, who all have new legislation addressing human rights risks.
The US has taken a different approach with its UFLPA, as it specifically targets China. Under that Act, US Customs and Border Protection (CBP) can detain or seize any goods made, in whole or in part, with inputs from China’s Xinjiang Uyghur region, thereby presuming that such goods were made using forced labour.
Importers have 30 days to demonstrate that the goods were either not made using forced labour, or that they do not include any inputs from the Xinjiang region. Since the prohibition applies to goods made in whole, or in part, and applies to companies that may or may not be located in the Xinjiang province, US importers of products from anywhere in the world are at risk, as inputs from Xinjiang can be used to manufacture goods outside China as well.
Importers must therefore demonstrate due diligence with their suppliers and be in a position to prove the absence of forced labour components in their imports. Of course, this also applies to non-resident-importers, for example, to Canadian exporters selling in the US using the DDP Incoterm (or the UCC term FOB Destination). CBP publish on their website a list of Chinese entities targeted under the UFLPA regulations, as well as a dashboard with the relevant shipment statistics. To date, out of 4,651 shipments held, 872 were denied entry, 1,849 were released and 1,942 were still pending. The shipments count by industry was as follows: electronics 2,156; apparel, footwear and textiles 812; industrial materials 756; agriculture and prepared products 283; consumer products 272; pharmaceuticals and chemicals 212; machinery 156; base metal 149; and automotive and aerospace 31.
Other jurisdictions
Our other North American partner, Mexico, has banned the importation of goods made with forced labour with regulations in force on May 18, 2023. Targeted goods are either designated by Mexico’s Ministry of Labour and Social Welfare (Secretaria del Trabajo y Previsión Social/STPS) or pursuant to a request made by a Mexican citizen or legal entity, which would trigger an STPS investigation. Mexican importers have 20 working days to respond and the STPS 180 working days to issue a final resolution.
Across the Atlantic, the European Union launched a public consultation earlier this year on their proposed regulation that would prohibit making available on the EU market any products made, extracted, or harvested with forced labour, whether they are made in the EU, or elsewhere.
Their approach is different due to legal differences between individual EU countries.
The EU is not directly targeting the entry of such products in their Customs Union, but instead will ban the placing of such products for sale on the EU market. Discussions are ongoing at the European Parliament and the Council of the European Union for entry into force of these regulations by the end of 2023 or early 2024.”